<img src="http://larvatusprodeo.net/wp-content/uploads/2009/04/jefferson_thumbo87o8686.jpg" align=left Karl Marx’ concept of ‘fictitious capital’ has enjoyed something of a revival recently – in the context of explaining the Global Financial Crisis. It’s interesting to observe [h/t Richard Metzger at Boing Boing] that Marx doesn’t appear to have invented the term – the phrase was used by Thomas Jefferson and the concept goes back to Ricardo and Adam Smith, and beyond them to earlier writers in the Eighteenth Century. There’s a bit of a message in that. Observers such as David Harvey argued quite some time ago – contrary to all the hype that was around in the 90s about the ‘new economy’ – that the increased and increasingly ubiquitous role of financial capital was what was distinctive about globalisation. More broadly, following the French historian Fernand Braudel and some of his epigones in world systems theory, we can conclude that markets predate capitalism. In tracing the history of capitalism, Giovanni Arrighi argues that particular accumulation regimes tend to emphasise financialisation as an accumulation strategy towards the end of their life cycle, as the limits of ‘material expansion’ are reached. There’s a recombination effect where the production of tangibles is eclipsed by the circulation of intangibles – each time opening up a new cycle of innovation across an ever larger geographical space and constructing a new ‘spirit of capitalism’ which brings in its wake newly reassembled subjectivities, new political divisions and new forms of inequality.
The ‘age of neo-liberalism’, then, saw a shift of power towards finance capital and a harnessing of immaterial labour to the creation of intangible value. It saw a new logic of personality where constant change and the ability to network trumped security and the old bourgeois virtues. What’s also new about the era of globalisation is the world wide scope and reach of one economic system, and the geographical dispersion of networks of value creation – where, for instance, value can be added by design in the metropoles to products manufactured in the developing world. Within the developed world, we’ve had a bifurcated services economy – with Robert Reich‘s “symbolic analysts” at the top of the tree forming a highly mobile elite and personal services provided by low skilled and often immigrant labour (mobile in a somewhat different way) or younger workers whose mobility into high end occupations is temporal. It’s been the less skilled and relatively immobile workforce in the declining ‘productive’ sectors who’ve largely been the losers in this conjuncture – a fact which explains a lot about the politics of the last couple of decades.
One way of looking at the current financial crisis is that it’s the first major recession to hit the developed world since the value creation switch was flicked from the production of things to the creation of intangibles. If one takes a Schumpeterian view, the “creative destruction” now occurring should lead to the emergence of a new frontier of value creation. It’s difficult to say what that might be, and the inability to identify any emergent field for capital to till probably contributes to the (quite possibly mistaken) belief that a little bit of interventionism will soon return things to business as usual. There’s a big contrast with the last major downturn – where Paul Keating recognised that the evisceration of manufacturing jobs in Australia – despite its human cost – was a necessary condition for the insertion of this country into the global flows and networks where the action was. That also explained his focus on the Asian and Pacific region.
I was struck last week by some comments from consultant, film maker and creative industries theorist John Howkins, in a keynote he gave at the CCi Symposium held at QUT. Howkins drew a parallel between the sorts of work and commerce advocated by the evangelists of the knowledge economy and the phenomenon of sub-prime mortgages. In his own case, he discussed Handmade Films (of which he is the Chair) and its experience in having to secure a valuation of its assets in order to raise finance. The valuation is highly subjective – given that the inventory of the company is immaterial and intangible – films and the prospect of future films. Howkins remarked that the mode of accounting for value is analogous in the case of financial instruments and derivatives, low doc loans and the products of creative labour – all three are essentially projective and dependent on shifting patterns of demand, income and the ability at any stage to liquidify, commodify or realise intangible value.
Similarly, Howkins argued that the forms of work pioneered in the creative sectors – project based, fluid, subject to multiple reinvention and recombination and reassemblage – have their parallels in the working lives of those at the bottom of the economic ladder.
Returning to the point I made earlier, there’s a dichotomy between mobility and immobility which parallels the division between material and immaterial value. We do live in a services economy when both those who are profiting from intangible products and those who are providing services within the same economic networks work in a way which privileges insecurity – the big difference being the highly unequal levels of social capital which can literally be realised as income and the degree of control and autonomy enjoyed by the assemblers of networks compared to those who are low level nodes in the same productive space.
We have really only just begun to think about the implications of all this for both economic analysis and social inequality.
We are also about to find out what happens to economies where competitive advantage comes from intangible factors when what is effectively value unsecured by any material assets or products encounters the collapse of the financialised networks and the evaporation of the fictitious capital which enabled the culture of the new capitalism to flourish (for some).
I have a slight problem with the whole “making things” meme.
Which is: what is it that is hard to grasp about paying for a service? At a trivial level, the difference between goods and services can be one of mere accounting definition, as when I pay for a web server (a physical good) or merely the megabytes on a server farm (a service, presumably).
On a deeper level, you don’t have to believe in Marx’s labour theory of value to realise that a high percentage of the inputs given in any physical good are made up of labour costs.
Sure, as a society we now pay for a haircut when we might have once cut our own hair; likewise we are prepared to pay financial advisors to gambled our money away for us. But I’m not convinced the “service economy” is unique and interesting because of the ontological types of value passing down the chain, but rather because of what that tells us about the way we live now (call centres as the factories of the service economy etc)
Among other things, it’s an expansion of commodification of activities and practices which were formerly outside the money economy. A very selective commodification, though, as a number of feminist economists have pointed out. Consider your example:
(a) Someone cutting the hair of a disabled or ill relative is not performing a service but acting as a carer;
(b) The stylist who cuts my hair (such of it as is left!) is not a recent immigrant working as a barber in a self-employed capacity – as might have been the case 40 years ago – but a low paid employee (and sometimes a backpacker). Her salon is probably owned by a man. She nevertheless has to present a certain appearance and disposition to merit the label of ‘stylist’.
(c) An enormous amount of symbolic labour goes into convincing me that I *need* to pay $65 rather than $16 for a haircut. The advertisers, marketers, the structures of emotional labour necessary to sustain a professional identity – and much more – all are part of the same commodity pyramid or value chain.
I think you really underestimate the difference – it’s not just a matter of an economic culture where “making things” or “administering things” or “primary production” are the key activities and sources of value – it’s also the difference between that culture and an “economy of signs”.
The more relevant concept from Marx here is the “collective worker”.
But geographical space is sort of limited, isn’t it?
Evolution is as much about failure and dead-ends as it is about progress. Still it’s too late to turn back now, eh?
My very quick swot-up at Wikipedia sees Marx using ‘fictious capital’ as a label for what are two quite different things IMO: stocks/shares and fiat currency. For the former he seems to be annoyed that someone can buy and sell a share of future income (why is this different from buying and selling rental property?). For the latter he seems to have a pretty standard classical economic beef with paper currency.
@3-
Indeed. And that points to a limit to accumulation strategies premised on opening up more of the world to the reach of capital. Part of Arrighi’s argument is a shift in the locus and size of the hegemonic centre of capital over time – from Genoa to the Netherlands to Britain to the United States. In every case, the extensability of the trade network is larger, as is the metropolitan power. I haven’t yet read his recent book on China (and Adam Smith), but the logic is there – whether or not a world economy centred on China is still “capitalism” is another question – but then capitalism is a very mutable beast.
Have I got that right?
I think the problem stems in part from the fact that the producers of intangible value and the intangible value itself are both highly mobile, whereas, while the services themselves are mobile (they can be procured basically wherever it is most cost-effective to procure them in a globalised world), those who provide the services are not.
The services can easily drift free of their producers according to the economic whims of the elites, thereby wreaking local havoc when, for example, Pacific Brands chooses to offshore production and cut loose 1800+ workers. The problem is made worse when intangibles become a market in themselves, with their relationship to services or material production encrypted by the financial system. Unfortunately, with the incalculable flow-on effects of disasters like sub-prime, we do not always hold the key to the encryption process, and financial confidence suffers from a fear of unknowable implication in financial disaster. For example, have the misfortune to invest in an implicated businesss, and down you go. Hence the stalled flow of credit.
Re the following quote from your post:
I suppose my concern is who is best equipped to navigate the ‘creative destruction’? That’s one test for what comes after all this. The beneficiaries may still drift free of the destruction they have wrought for others.
Wikipedia’s not fabulous on this, Jacques. Try this from Michael Perelman:
http://michaelperelman.wordpress.com/2008/09/16/notes-on-fictitious-capital/
It’s a bit long, but worth a look. He reminds me that both Ricardo and Adam Smith employed the concept as well, and of Adam Smith’s reservations about credit.
Not necessarily, Darren, because those who work in more pure forms of the service economy at the lowest rungs tend to be more mobile – even if that mobility is illegal immigration. As I was saying, it’s more the immobile former lower middle class and working class who are affected – but within the category of mobile workers there’s a huge gap in terms of unequal remuneration and almost a polar opposition in terms of autonomy.
Yes. I strongly agree.
So… “creative destruction”, good… but individualist anarchy, bad.
It’s a fine line innit?
I don’t think I’m necessarily arguing in favour of creative destruction. The sentence in question in the post is conditional – if you want to be Schumpeterian…
Never for a moment thought you were.
It’s just interesting how the same phrase can be spun different ways.
Michael Leeden {2002}:
“Creative destruction is our middle name, both within our own society and abroad. We tear down the old order every day, from business to science, literature, art, architecture, and cinema to politics and the law. Our enemies have always hated this whirlwind of energy and creativity, which menaces their traditions (whatever they may be) and shames them for their inability to keep pace… They must attack us in order to survive, just as we must destroy them to advance our historic mission.”
Dear Micheal was dead on target. Just not the target he had in mind!
Ah, yep, see your point now!
The mind-blowing this is that, before this massive “friendly fire” incident, people like Leeden could pass themselves off as conservatives.
Surely the past year has provided more than enough nails to secure the coffin lid on this latest, twisted and deformed incarnation of “conservatism”. It’s astounding that it managed to draw breath as long as it did.
Time for small “l” to take the stage.
“Long ago, there was a noble word, liberal, which derives from the word free. Now a strange thing happened to that word. A man named Hitler made it a term of abuse, a matter of suspicion, because those who were not with him were against him, and liberals had no use for Hitler. And then another man named McCarthy cast the same opprobrium on the word… We must cherish and honor the word free or it will cease to apply to us.”
~Eleanor Roosevelt
I’ve downloaded it. I may have to cop out of reading it properly, what with paying HECS for my education an’ all.
Marxist economics is a pretty straight offshoot of classical pommy stuff in many ways. Makes sense really, that’s what there was at the time. A lot of the critiques for Marxism (such as the labor theory of value vs subjective value) are also critiques of the Smith and Ricardo he started from.
Yep. That’s what I could have got at with my comments on Smith in an earlier post – there’s a somewhat one sided appropriation of his legacy from later thinkers. It really is worth reading the classical political economists (and I agree that Marx is one too – despite his scorn for them) first hand, if you have the time!
Mark — on the topic of properly reading classic books, my fondly cherished dream is to go this university one day.
Arrighi’s argument also raises the obvious question of quite how maturated our present economic moment is. The current crisis reminds of the rise and rise of Britain as a pre-eminent economic power, with vast hordes of so much dragon gold, vast amounts of which were lost in astonishing speculation. And lest not we forget Kidron’s work of the 1970s – the need for excess capital, real or otherwise, to be expunged.
What I think is different, though I’m still not quite sure to what degree, is that intangibles have in themselves becomes tradeable commodities, and as both the dot.com bust and this latest farrago have shown (and Howkins’ point describes) is that the methods of the market in its processes of analysis, aren’t a fat lot of use. Capital still wishes to make more of itself – and spectacularly if possible. Measuring outcome is easy; predicting outcome would seem to be a lot less likely.
On the micro-economic level, this is not more of a risk than a crop that fails, a ship that sinks, a seam that runs out. But on a macro-economic level, its very unpredictability, its transitional nature, its vast grip on the globalized economy may mean in the medium term that the bust and boom cycle of outrageous fortune will be with us for quite some time yet. Which is also why China’s interest in a new international currency is so horrifyingly mesmerizing. Interesting times. Interesting times.
Interesting, Jacques. Is it a religious institution?
Some very good points there, Bernice!
Mark — no affiliation with any church. Apparently quite popular with some fundies because the bible is part of the curriculum. On the other hand they apparently get quite upset when their children turn up having read all the stuff that came after the bible … Hegel, Marx …
Heh! I was wondering about “St John’s” in the name of the college…
Mark – The concept of fictitious capital goes back a lot further than economic theorists of the Enlightenment.
.
Further back than that even.
More broadly, following the French historian Fernand Braudel and some of his epigones in world systems theory, we can conclude that markets predate capitalism.
.
Due to a 20th century historian we can conclude that markets predate Capitalism!!!!!!!!!!!!!!!
.
Are you serious?
Yes, Adrien, I am. I’m at a loss to understand what your question means.
It means: surely you can’t be serious that an historian in the 20th century has suddenly revealed to us the axiom that markets predate capitalism. Are we going to find next that some Parisian intellectual has suddenly revealed that people grew wheat in Persia during the reign of Darius the Great?
.
What was the Agora for?
Adrien – the point is that there are differing definitions of capitalism some of which place markets at the centre. Viewed historically, this is an insufficient definition. I’m not sure what your snark adds to the debate, which is an important one. We shouldn’t presume we know what capitalism is, and a lot of the claims that it is somehow “natural” are unwarranted extrapolations from the process of exchange which takes a number of forms and is embedded in very different social and economic formations over time.
It’s a tricky word because I believe it was coined by Marx but has been generally used by many commentators and theorists to mean “Not Socialism/Marxism/Communism/Statism”. I believe Marx was specifically talking about the theft of wealth from workers by a class who accumulated the wealth as capital. Something like that, I admit that I know less about classic Marx than, say, classic Mises.
Jacques, Wikipedia is quite interesting on the etymology:
http://en.wikipedia.org/wiki/Capitalism#Etymology
Marx’s view on capitalism as a mode of production was that its distinctiveness came from the centrality of the exchange of labour and the parallelism of the ownership of the means of production by the bourgeoisie and the ownership of labour time saleable as a commodity by the working class. In other words, the labour process is at the heart of capitalism.
… a perspective with which I disagree, but that’s another story.
Apologies for the confused post Mark. I think I was just expressing my annoyance with the prevalence of the “making things” versus “service economy” dichotomy. I agree with your point about the economy of signs …
No probs, Ben. It’s probably worth pointing out that the meaning embodied in consumer objects that are “things” which are “made” long predates any supposed new economy, and that’s no doubt another way that dichotomy can’t be sustained.
Capitalism is the “natural” consequence of a polity that allows people to keep and trade the products of their labour. Capitalism results in the greatest productivity (compared to all other systems) when the polity also has the rule of law and enforcement of bargains. In other words, in those social conditions capitalism just happens.
1. But under what conditions do polities:
a. give economic actors ownership of themselves? In 1800, most Europeans did not own themselves.
b. give economic actors the right to set market prices? Until the 18th century, many important transactions were hedged around with proscriptions.
c. commodify real estate, the most important source of wealth before the Industrial Revolution?
2. These developments didn’t occur “naturally”. They are recent products of intense political and cultural struggle.
I did not say that the conditions allowing capitalism arise naturally. Indeed, men fought and died for them and a good fight it was too.
Mark -
Indeed. A very good question: what is capitalism? Marx coined it. Weber added something vital about the ethos. I think Foucault’s description of it, not as a ‘market’ thing but as a rationalist technocracy (hence resembling command economies generically) also helps.
.
The difference between working for a merchant c. 1215 and working for one c. 1840 is not so much in producing, say, textiles for a market but in the manner in which this activity is organized and the effect it has on the human animal.
.
In the general parlance Capitalism means ‘market economy’. This of course hides a multitude of , shall we say, not so ‘user-friendly modes, and some very dark stuff that itself is much older than capitalism and about the same age as markets.
.
Thing is advocates of a command system or a democratic regulation of the markets don’t really address the technocracy. On the contrary they arguably expand it.
.
That all said the government isn’t the best place to address that question. Government is the father of technocracy.
Capitalism is the “natural” consequence of a polity that allows people to keep and trade the products of their labour.
.
.
This assertion comes of the conflation error that comes of confusing market and capitalism.
.
Market develop naturally. When one group has too much of something they will trade the surplus for something else someone else has too much of. In what is now Southern Iraq the world’s oldest known city-state network developed somewhat between the rich agricultural communuties to the north and the fishing villages on the Persian Gulf.
.
The trade proceeds the cities, that is precedes the States, by thousands of years. Surrounding territory is not as fecund as those aforementioned. And the truism that people who live hard lives are themselves harder than those who grow up in relative abundance obtained then as it does now.
.
What will happen in a situation where the hardened poor are juxtaposed near the prosperous. Especially considering that politics and what we think of as religion are yet to appear.
.
Hence the walls.
.
And armies to maintain and defend them. And all that costs so they charge fees of anyone coming inside the walls. Walah! The State. And what ‘natural’ system of government appears? Democracy? Are you nuts? A God-Kingdom.
.
Capitalism is about technological capacity to produce mor, hence most of us work in the tertiary (or above) sectors of the economy. Back then most worked in the primary sector and in fact only last year did the city dwellers begin to outnumber the rural folk globally speaking.
.
What was fought for was democracy. Democracy has a different genealogy to those of markets. But in the early part of the modern era those who worked in the one advocated the other. They were a mite sick of the age-old born aristocracy taxin’ ‘em for dumb-arse reasons.
I’ve just discovered this article and discussion. Mark, why do you disagree with the idea that the labour process is at the heart of capitalism?
There’s a recombination effect where the production of tangibles is eclipsed by the circulation of intangibles
What on earth could this possibly mean? No offence, but it is written by a fraud who does not understand marxian political economy. But, why would you even bother?
More broadly, following the French historian Fernand Braudel and some of his epigones in world systems theory, we can conclude that markets predate capitalism.
You’ve only discovered this in the last 12 months because a twentieth century French annalist historian told you!? Wow.
“but it is written by a fraud who does not understand marxian political economy.”
But… the very definition of a fraud is someone who DOES understand marxian political economy.
Here, read some nice Ptolemy.
Spam alert with comment number 42 [moderated -dk]. Amazing how they adapt!
Mark, you know I’m a regular interested reader while not being your #1 fan, but this is one of the more thought-provoking posts I’ve read this year, especially the line about network assemblers vs nodes, and the discussion about creative labour. I’m not sure I find much to agree with elsewhere, though.
As with many pieces on tangible/intangible, manufacture/services divisions, there is little acknowledgment of the embedding of the services economy in tangible products. That is, you can’t separate the areas as easily as this post implies. Financialisation of the economy is also not an inevitably diminishing-returns situation, nor simply a producer of intangible value. Liquidity is the obvious advantage, as you mention, but equally (or more!) so is the increase in information that, for example, derivatives trading provides, and that are incorporated into ‘stuff’ you can touch.
Regarding haircuts, my local barber is of the old-school immigrant sole trader type, but I ditched him for the more expensive hairdresser (a woman who owns her business and employs another woman) because their skill was indubitably higher and worth the greater cost. And I disagree with your analysis of haircut prices. I tend to assess a service’s worth by what I think is a fair hourly wage, modified by my guess as to running costs, etc. Unless the haircut takes minimum time and effort, I think any cutter, be they barber or high-falutin ‘stylist’, is worth more than $16.
Then again, I once went to a fellow in Canberra who used to work for the army, and still cut hair the same way 15 years later – 2.8 minutes of electric razor work, $10.
Say what you like about the sp#mmers, they do bring some interesting posts back to the top.
Whoops. Now I feel out of date.
the Economic recession made a lot of jobless people in my own country. We could only hope that our economy becomes strong again.
More spamming!